Last week we commenced a discussion on the decision of the Government to deregulate fuel prices in India.  After the initial reaction of cheer at the bourses and predicatble howls of outrage from Opposition parties, it is now time for a more serious impact analysis, both economic and political.

At the outset, it must be noted that the Government has left an escape route open for itself, as its Empowered Group of Ministers ( EGoM ) has indicated that in case of rise in international crude oil prices the Government could intervene.

Interestingly, the level at which it deems intervention a viable option seems to have been deliberately left ambiguous, offering the Government greater flexibility, both economic and political.

The agricultural fraternity ranks high among the most potent voting blocks across India. The Government has played it smart by sugar-coating the bitter fuel price decontrol pill that will impact their diesel consumption costs, with a hike in the Minimum Support Prices (MSP) of food grains that the Government pay them.

The BJP, the largest Opposition party and many of its NDA allies managed to disrupt life with a ‘Bharat Bandh’ that cost the exchequer heavily. Ironically, it was the BJP Government in the first half of this decade that first proposed a fuel price decontrol. It even mooted it in 2006, while in the Opposition and offered to support the Congress to pass it in Parliament. 

The Left Front however has raised rather uncomfortable questions, with the primary one being, if it is indeed an ‘Aam Aadmi’ Government as the Congress led UPA likes to position itself as, then why not cushion the impact of the inevitable price rise with a lowering or abolishment of duties on fuel.

The Left is of the opinion that the duties which rake in as much as Rs.1,20,000 crores for the Government exchequer is what raises fuel prices in India to back breaking levels.

Another question revolves around the ‘exagerrated’ under-recoveries reported by the OMCs, which the Government used as the basis for its deregulation drive. No clear answers have been forthcoming on this issue. 

There is also the issue of the timing of the deregulation announcement. At a point in time when food supply mismanagement by the Government has triggered a food price driven inflation of alarming proportions, shouldn’t’ the Government have deferred its announcement ?

Well, the jury is still out on that one, but rest assured, with oil price deregulation in place, place your bets on the re-entry of private oil players like Reliance and Essar Oil.

Collateral beneficiaries, perhaps ?